System and method for selecting and purchasing stocks via a global computer network

Abstract

The invention is in the field of using a computer to provide automated investment allocation advice, selection of investment securities, customization of the automated advice, execution of investment securities, maintenance / monitoring of investment portfolios and rebalancing of investment portfolios. A user is connected to the Internet. The user connects to the portfolio management program (PMP) host computer through the Internet. The user completes a questionnaire that the PMP uses to generate a suitable investment allocation and specific portfolio strategy recommendation. The user reviews the strategy and specific information about the strategy. The information is transmitted across the Internet to the user. The information transmitted includes historic and / or hypothetical performance, historical and / or hypothetical holdings, current securities selections of the strategy, and a description of the strategy's selection methodology. The user, after making appropriate reviews, makes a decision to purchase the instruments in that portfolio. Now the user sees a list of instruments provided by the PMP host computer. The list of stocks is ordered by the degree to which they satisfy the requirements of the strategy. The user can then make the decision whether to accept, reject, or replace any individual security in the generated list or add an individual security. For example, the user can reject a security in the strategy and ask the PMP host computer to replace it with the next security that best fits. Once the user has approved the content of the proposed portfolio, the user enters an amount that the user will invest in accordance with the strategy. The PMP will allocate the investment amount across all the securities in the strategy. The user may authorize the PMP to purchase these selections through their qualified broker. The user may monitor the performance of these instruments subsequent to purchase through the PMP. The user may receive news, alerts, and / or research related materials for these instruments through the PMP. The user may authorize the PMP to rebalance their investments periodically to an updated list of instruments matching the selected strategy. The user may select a rebalance method that optimizes the tax consequences or the strategy adherence. The user has the ability to accept, reject, or replace any individual security in the generated list or add an individual security as part of the rebalance. The user can set up automatic email notification of rebalance dates or to have the PMP vote the proxy of the shares. The owner of the PMP host computer collects a payment for this service.

Description

CROSS REFERENCE TO RELATED APPLICATIONS[0001]This is a Continuation-in-Part Application claiming priority under 35 U.S.C. Section 120 from U.S. patent application Ser. No. 09 / 433,531 filed Nov. 3, 1999 now abandoned, which in turn is a Continuation-in-Part of U.S. patent application Ser. No. 09 / 360,003 filed Jul. 23, 1999 now U.S. Pat. No. 6,484,151.COPYRIGHT RESERVATION[0002]A portion of the disclosure of this patent document contains material which is subject to copyright protection. The copyright owner has no objection to the facsimile reproduction by anyone of the patent disclosure, as it appears in the official patent file or records, but otherwise reserves all copyright rights whatsoever.FIELD OF THE INVENTION[0003]The invention is in the field of using a computer to provide automated allocation advice, selection of investment securities, customization of automated advice, execution of investment securities, maintenance / monitoring of investment portfolios and rebalancing of in...

AI Technical Summary

Benefits of technology

[0148]A $10,000 investment at 11% for 40 years is worth around $650,000 while the same investment at 12% for 40 years is worth around $930,000. Percentages add up, especially when they work against you coming AND going. A $10,000 investment at 13% for 40 years is more than $1,327,000: almost double the aforementioned return on 11%. The price advantage of the present invention can be leveraged with each transaction that takes advantage of the lower cost and efficiency.

[0149]It is contemplated that annual rebalancing of portfolios may take place. As has been discussed, it is often helpful to sell “losers” before the expiry of one year so the loss may be counted against ordinary income. While it would be preferred that the selling of the “losers” would also be a basket trade executed by the user (or agent) with a special order generated by the PMP, it is not likely that independent brokers will allow those trades at the steep discount provided by the PMP. However, the “winners” would preferably be sold in that fashion, and the new replacement stocks would also be obtained through the PMP to keep trading costs down.

[0150]Another aspect of the present invention is an automated method of selecting stocks that allows for the cloning of mutual funds, account managers, or any other equity portfolio to derive an investment portfolio. Referring now to FIG. 17 in a preferred embodiment, the user enters the ticker symbol of the fund the user wants to clone. Software is used to access the individual components of the fund based on percentage of total assets. For example: The program will access the individual holdings of the fund based on percentage of total assets. For example, Microsoft, AOL, Amazon, Cisco, Pfizer, Coke, GE, Best Buy, etc. The software implementing the present invention will than analyze the portfolio across all factors, such as price-to-earnings ratio, price-to-book ratio, earnings growth rate, book value growth rate, dividend yield, market capitalization, etc. Any generic database such as S&P Compustat, Value Line, Marketguide, etc. can be used for the data feed. The underlying factor profile is than contrasted with the same factor for the market as a whole. For example, one might find that the average PE for this portfolio is 10 whereas it is 33 for the general market. That makes it a significant factor that defines the fund's (or fund manager's) unique style. One might also find that the market capitalization of the average stock in the fund is $22 Billion, compared with $10 Billion for the average stock. Each factor is compared with the average and median for the market and sorted by greatness of difference. For further background, see O'Shaughnessy's book Invest Like the Best (McGraw-Hill 1994) especially Chapter 3, incorporated herein by reference.

[0151]The factors are ranked in the order by which the fund most deviates from the market to create screens as in FIG. 17. For example, PE is 70% lower than the market; market capitalization is 120% higher, etc. The user is then invited to allow a backtest or to customize from the underlying factors. For example, the user might note the sales increase for the previous year is one of the largest deviations, but not want to use it as the criteria for his backtest and he could optionally remove that criteria.

[0152]Once the user has selected either the program's selected criteria or his customized version thereof, the program then backtests the selection criteria on historical data. For example, if the resultant criteria were:

[0156]4. Price appreciation set high to get just 10, 15, 20 or 25 stocks.

Problems solved by technology

One of the largest problems of mutual fund investment is the potential for embedded capital gains that will be distributed to all shareholders of record whether or not they enjoyed the gain from the stock being sold.

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